MICRO AGRI PRODUCT Designing a Rural Finance Product: Module 1, Session 2 Designing a Rural Finance Product: Overview of the Product Development Process

Session Objectives By the end of the session, the trainees are expected to: Define market research Identify and list the steps involved in market research Conduct market research Read slide Click to show the next slide

What is Market Research? “It is the systematic design, collection, analysis and reporting of data and findings relevant to a specific marketing situation facing the company.” -Philip Kotler According to Philip Kotler, market research is… [READ QUOTE] Note that the operative word is “SYSTEMATIC”, and 5 general steps are involved. Go to next slide

What is Market Research Steps Involved Define the objective or research problem Design – determine how you will go about the market research, and what tools to use. Collect and process Analyze Report Read bullet 1: The objective should be clear for those wanting to do research because the design of the research and the tools to be used are dependent on the objective(s). ASK participants to give example of a research objective. Read bullet 2. – “If this is what I want to know, what data or information do I need and how do I gather them?” Read Bullet 3. Collect & process – data could come from secondary sources; or from primary sources, such as from survey interviews. Data collection should be entrusted to personnel who have respect for data integrity. NOTE: RURAL BANKS DO NOT NORMALLY HAVE A RESEARCH AND DEVELOPMENT UNIT, UNLIKE BIG COMMERCIAL BANKS.

Product vs. Market-Driven Approaches Why do Market Research? Product vs. Market-Driven Approaches PRODUCT-DRIVEN – produce something and try to sell it without much regard to market demand. MARKET-DRIVEN –identify and meet clients’ needs on a profitable basis. Read bullet 1. It is said that microfinance is one of the few sectors that basically remains product-driven. ASK 2 or 3 participants: Why do you think this is so? (There is no wrong answer!) THEN DRIVE HOME THE FOLLOWING POINTS WHY MF IS BASICALLY PRODUCT-DRIVEN: Tendency to copy what others are doing without asking themselves if the product being copied is suitable for their own particular markets and environment. This basically arises because of the belief in the “cookie cutter approach”, or in the perception that “one size fits all”. However, this belief has long been discredited. Tendency to design products without knowing what is the nature of market demand. Go to bullet 2 MARKET-DRIVEN approach, on the other hand, asks first what the environment and the markets are like. It looks at what market niches offer opportunities and profit as well as what the competition is like in the target markets. The bank uses the information to identify their markets and design suitable products.

Market Research Process Product Review and Modification Product Test Product Development Satisfaction FGDs Exit survey Secondary data FGD Area mapping Survey Feedback This chart introduces the participants to the tools they will learn in the module. READ EACH VERTICAL LABEL. Each of these will be explained in more detail later. ASK who among the participants have used any of the tools to get information for the use of the bank. EMPHASIZE A FEW POINTS to bank participants: Market research - not a one time activity; it is something that a pro-active bank should be doing continuously, in one form or another. As the chart shows, market research is a process to take for the purpose of product development to product test to product review. During product testing stage, loan officers and managers should listen well to what the clients are saying about the product and bank service. Such information should be collated in some way. At the product review stage, feedback about the bank product and services can be gathered from current clients and those clients who have left the bank. The tools of focus group discussions and exit survey are particularly helpful. POINT TO THE END OF THE ARROW: The end of the arrow in this chart is not the end of the market research activity. Bank managers should continue updating information on what the competition is doing, if possible monthly. The environment for microfinance is changing fast, and some players are faster on the draw – that is, they are able to modify their products to respond to competition. Also, banks will experience drop outs among clients, and they also need to know why their clients are leaving. Go to next slide

Product Development: Market Research Framework Market Size and Risks Research Problems: Is there sufficient market for the bank’s microfinance operation? What are the risks? Market Risks Secondary Data Gathering Market Size THERE ARE TWO CHARTS THAT FOCUS ON THE RESEARCH ACTIVITIES FOR PRODUCT DEVELOPMENT. This one shows graphically the steps and information needed to answer a vital question a bank should first ask: IS THERE SUFFICIENT MARKET FOR THE BANK’S MICROFINANCE ACTIVITY? If there are other players, is there room for one more? Using secondary data, the bank can determine (POINT TO THE BOXES AS THEY ARE MENTIONED) the market size, the competition and their share of the market, as well as the market risks. This will then lead to a quantification of the size of the “unserved” market, which will then provide the bank a basis to decide whether or not to develop a product for this market. LEAD THE PARTICIPANTS TO THE NEXT CHART. – Go to next slide Size of “Unserved” Market Decision Point: Market Go/No Go Size of Market Served Assessment Competitor by Competitors If GO, proceed to Market Survey If NO GO, look for other sites and repeat the same process

Product Development: Market Research Framework Product Development and Business Planning Research Problems: What product (s) would be suitable? What is the potential market share of the bank? OUTPUTS Market Survey Area Mapping Asses sment of Demand & Supply Characteristics Estimation of Bank’s Target Market Share Product Concept Design Financial Projections Secondary Data “What do clients want?” Focus Group Discussions (FGD) HAVING DECIDED IT WOULD BE A “GO” FOR THE BANK, THEN ASK THE SECOND RESEARCH QUESTIONS: “What product …(read slide). And, “What is the potential market share of the bank?” ASK: What is the best way to know what the clients want? GET RESPONSES. The answer is, of course, talk to the clients, ask them. To get a general idea of what they want, we can invite them for a discussion using the FGD or focus group discussion tool. FGD is one way of getting information by bringing our sources of information, in this case, the microentrepreneurs, to one venue, and having a conversation with them on specific topics. The results of the FGD could be used to refine the questions in the market survey questionnaire. For example, the FGD could provide information about the sources and prices of credit available in the market, what the clients prefer, and so on, thus helping the bank design questions based on that information. We then conduct the market survey using field interviews. The results of the market survey will give an informed assessment of the characteristics of the demand for financial products as well as the characteristics of the products already available in the market. Using this assessment we come up with our own product concept design – what kind of product can we offer? Having designed the product, the bank can then estimate its target market share based on the data on the types and numbers of microenterprises indicated in the data gathered from area mapping and secondary sources. BEFORE ENDING THIS SESSION, GO THROUGH SECONDARY DATA GATHERING FORMS (see next slide).

PRODUCT DEVELOPMENT CYCLE Product Design Product Test Product Review Market Research This training will take you to the product development cycle. The result of the market research will give you ideas on how to design the desirable features of your product. Note to facilitator/speaker: Click “market research” to go to the link that defines what is market research. In that link, Click the back arrow to go back to this slide. Click “Product Design” to go to the link that defines what is market research. In that link, Click the back arrow to go back to this slide. Follow the same procedure for the rest of the steps. Wrap up discussion on this slide: Remember these following objectives in determining product features: To respond effectively to client demand To be simple and easily understood by clients and easily managed by the bank To be cost efficient both for the bank and the client To generate enough revenue to cover costs and make a profit To ensure that clients are motivated to repay loans and become repeat customers To ensure that all risks to the bank are reduced as much as possible Now let’s proceed to the tools we need to use to conduct a market survey. Go to next slide The product test normally runs for six months after which a product evaluation or product review is made. The result of the review will determine the need for further enhancement of the product features and will determine the suitability of the product for rollout. Product Rollout

Guidelines in Conducting Market Research for Micro-Agri Product Use Hand-out and Survey Tables and Questionnaire

Secondary Data (Handout 1, MR Tables 1 - 2) Data Element Source Population NSO # of households NSO # of Farming Households Mun.Agri. Office Barangay Office # of HH w/ at least 1 ME MPDO/ Brgy. Office activity Major sources of income MPDO, interviews THERE IS NO NEED TO READ THE BULLETS. THEY ARE SELF-EXPLANATORY The speaker who will discuss Area Mapping will give you a brief guided tour of the tables that contain the data elements shown in the chart. Refer participants to Session 2, Handout 1, MR Tables 1 and 2

Data on Competition (Handout 1, MR Tables 3 – 4) Information Loans: Types, terms & conditions Table 3 Formal and informal sources Savings: Types, terms Table 4 Rural banks Commercial/thrift banks Credit unions Paluwagan REFER TO Session 2, Handout 1, Table 3 (Information on Loans-2 pages) and Table 4 (Information on Deposit) Information can be gathered directly from the institutions – from brochures, leaflets, or informants in the institution. If the bank keeps updated market intelligence information on the data called for in the tables, then the bank can use such data. Go over quickly over the information elements to gather on loans (Table 3). Then go to Table 4. Ask if there are any questions about the two tables.

Data on Target Market (Survey Questionnaire) Profile of Target Market 1. Agricultural Activities 2. Non-Agricultural Activities (Micro-enterprises) 3. Credit Practices 4. Savings Habits This will be explained in detail during the discussion on MAP market survey questionnaire.

Thank you

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MARKET RESEARCH What is Market Research? Market research is a scientific technique of identifying the possible opportunities available to microfinance institutions (MFIs), and the risks involved. There are different tools the bank can use to identify the nature of the demand for microfinance services (microenterprise & micro agri), the size of the market, competition, and the demographics of the target clients. MR is the systematic design, collection, analysis and reporting of data and findings relevant to a specific marketing situation facing the institution. Knowledge of the market is necessary for the successful design of a microfinance product. Once the MFI recognizes this essential information, it is prepared to design a microfinance product that suits the needs of its target market and make the most of its untapped opportunities. CLICK THE BACK ARROW TO GO BACK TO THE PRODUCT DEVELOPMENT CYCLE

Product Design involves: Designing and developing a product Developing a product manual (containing loan policies and procedures) Determining any adjustment to MIS requirements (MIS gap analysis) Preparing financial projections After conducting market research, participants should now be ready to design their respective loan products. In the Product Development Module, participants will be provided with the necessary knowledge and skills to design a product prototype, develop a product manual, determine if any necessary adjustments in their MIS are needed, and prepare financial projections. The MABS Approach recommends a client-focused, demand-driven approach to designing microfinance products, instead of the supply-driven, “one-size fits all” approach that most MFIs traditionally practiced. Designing a product and developing a product manual involve: Design Product Features Review product features through FGDs and EIR Design Lending Procedures Formulate MFU Organization & Management Plan Conduct MIS gap analysis Prepare financial projections Present to the Board the Product Manual and Financial Projections for approval Enhance/Install MIS

Product Test involves: Hiring and Training of Account Officers Orientation of Bank Officers and Staff Product Testing Product Monitoring This is where the bank hires and trains Account Officers to handle the product The product test normally runs for six months.

PRODUCT REVIEW Product Review is conducted 6 months after the Product Pilot Test or Bank has already 100 clients. The review is conducted to assess whether: Projected # of borrowers, portfolio quality and revenues are met? If not, why? Staff and clients like or dislike the product? If it’s the latter, what are the ways by which the product can be improved? Operations Review is conducted six months after the Product Pilot Test to validate the following:   1.1 Product Pilot Test Results Are the projected number of borrowers, revenues and deposit level met? If not, why? 1.2  Bank’s and Clients’ acceptance of the product What do bank staff and clients like best or like least about the product? What can they suggest, to improve the product?

Product Launching involves: PRODUCT ROLLOUT Product Launching involves: Orientation of officers and staff of expansion branches Market survey of areas of expansion the branches MIS enhancement/installation Hiring and Training of Account Officers Lending After pilot testing the product, the bank is now ready to launch it to other branches.